In: Finance
Suppose the shares of Hector Financial are expected to pay a dividend of $10 next year. The annual growth rate is expected in the long term to be 2%. Investors require an 11% return on their investment in Hector Financial. What should be the price of this stock?
Select one:
a. $90.91
b. $92.73
c. $111.11
d. $113.33
Ans c. $111.11
P0 = | Price of Share |
D1 = | Current Dividend |
Ke = | Cost of Equity |
g = | growth rate |
P0 = | D1 / (Ke - g) |
P0 = | 10 / (11%- 2%) |
P0 = | 111.11 |